Scaling your VC operations with portfolio management software (2024)

Venture capital is a fast-paced environment, which requires an agile, dynamic approach to investment strategy. This becomes progressively more challenging as your business grows. When you’re a newly minted VC dealing with just 1-2 funds, executing deals is your number one priority – but what happens when you scale up? Tracking all your data in Google Sheets and OneDrive isn’t going to cut it after you close your 3rd and 4th funds and need to regularly monitor 50-100 portfolio companies.

A hallmark of a successful VC is a robust, data-driven investment strategy, based on analyzing quantitative and qualitative data and using learnings from past experience. It follows that implementing a good portfolio management solution is a game-changer for scaling up your VC operations, turning overwhelming amounts of raw data into clear, structured information ensuring you can continue to protect and grow your investments.

“Most portfolio management systems have many common features,” says Shiyi Li, VP – Client Solutions at Quantium. “But more important is the underlying framework of how the system is built. It needs to function well for private markets operations.”

“For VCs, the core objectives of implementing a system is twofold – it needs to improve the entire team’s efficiency and it needs to help you stand out during LP reporting and fundraising.”

There are three broad categories you should assess during your software search. These will ensure your chosen venture capital system is the best fit for your business objectives:

1. Flexible data structure to support constant changes
2. A single source of truth across finance, portfolio and IR teams
3. Supports LP and investors’ reporting and due diligence processes

1. Flexible data structure to support constant changes

Based on their maturity, VCs need to monitor different levels of information. Early-stage companies may only have revenue and users, whereas series B and pre-IPO companies may report monthly trends by product and key operating metrics. There are also IC / budget vs. actuals; multiple currencies; quarterly comments internal vs. external and many more.

Labelling can also be a problematic area, since naming conventions and categories can vary from fund to fund and may change constantly. For example, it is common to have changes of industry and sector definitions; industries like Web3 and space manufacturing did not exist just a few years ago!

Certain data sets also change over time, such as cap table, valuation method and deal terms for different rounds. Portfolio companies can also be restructured or spun-off.

The dynamic nature of the data poses a major challenge for VC portfolio teams and CFOs, who are all trying to make sense of a jumble of multiple data sources and metrics. They also have to overcome short timeframes in which to standardize them all, as well as convey the analytics to their partners and investors.

Your ideal VC portfolio management tool should be built with a solid data foundation and allow easy user configuration – i.e where you can easily set up or modify your fund’s specific labels without a developer’s help – and a user-friendly process for inputting data. Many enterprise solutions claim to be flexible and easy-to-use, but in reality every modification is technical and has to be made by programmers. This often results in long implementation times and a hefty bill at the end of the never-ending customization process.

Below is a list of the most important features to consider when assessing the flexibility of a portfolio management system:

2. A single source of truth across finance, portfolio and Investor Relations teams – the data should not be siloed

Getting accurate data on portfolio returns – gross IRRs, MoM, Total value, etc. – is challenging for VCs with large portfolios and cross-currency investment operations. Without a robust portfolio management system that helps standardize the cash flows, automate the calculations and FX involved, working out these calculations manually is time-consuming and prone to human error.

Successful VCs often make follow-on rounds of investments into the high-performing companies until IPO stage. Therefore they don’t just track information on the investee company level, but also at each deal level (e.g. return forecast, key deal terms) so that each data set can be labeled for different investment rounds analysis and different stakeholders’ view – e.g. a simple dashboard for the legal team to view all key deal terms in one place. A good portfolio management system will have well-organized data as a foundation that results in error-free calculations.

Some investment teams look to further analyze the portfolio returns made by different investment entities (and denominated in different currencies) with a goal to slice and dice investment performance across all funds – e.g. by industry, by deal partner, by rounds. This seemingly easy task can involve very complex calculations, as it requires 1) consolidation of all investment cash flows in one Excel file, 2) converting them all into a unified currency denominator, 3) attaching labels to the cash flows, and 4) running the performance analysis in a second, separate Excel file.

The complexity of the calculation multiplies exponentially with the growing number of investments – think 500 portfolio companies with thousands of cash flows and valuations! Ultimately, you want to select a portfolio management tool that ensures calculating IRR isn’t a headache, and that accurate, consistent figures can be used across portfolio, finance and IR functions.

While evaluating portfolio management software for cross-functional compatibility across your finance, portfolio and investment relations teams, you may want to consider the following features:

3. Support LP and investors’ reporting and due diligence processes

With a growing focus on investor servicing, data accuracy and response time are becoming critical success measures for fund managers. The right portfolio management software can help streamline fund operations and cross-team collaboration in multiple ways:

Automating routine tasks helps reduce the amount of time VC teams spend on time-consuming, low-value tasks linked with investor servicing and gives them the ability to focus on more important objectives, such as data analysis and tweaking their investment strategy to maximizing returns. Recurring outputs such as portfolio company one-pagers for quarterly LP reporting, preparation for AGM presentations and deal list overviews as part of regular portfolio review meetings are important, but often take days or even weeks to compile even though modern tools make automation possible.

When selecting the best solution for your firm, you need to assess whether your first choice will elevate your VC firm’s operations from input-focused (simple data storage) to insight-driven (meaningful analysis of the data). Fund managers should be able to fully utilize their data instead of letting it stagnate in outdated Excel spreadsheets.

A good portfolio management software should also support VCs in in presenting data insights for fundraising or due diligence use. Obtaining key data points such as track record overview across all funds and currencies should be possible with a few clicks of a button, as well as visualized value creation analysis at single company and portfolio levels. Slicing and dicing by attributes (e.g. by industry, by deal partner, by rounds) on a granular level is also a useful feature, as it allows the VC to validate their own investment strategy and adapt when needed.

If you choose the right partner, a modern portfolio management system can greatly minimize the risk of manual errors – but more importantly, is capable of heavy-lifting tasks such as automating complex calculations as well as tedious report preparation.

Here are the main features you should consider when comparing portfolio management tools on how well they can support your investor servicing efforts: